Arizona May Impose Unusual New Tax On Customers Who Lease Solar Panels

A new interpretation of state law in Arizona could force customers to pay property taxes on leased solar panels. In a state with an estimated 20,000 solar customers and 85 percent of new solar installations being leased systems, the implications of an extra charge are tremendous. The new tax could result in an additional $152 per year for a residential solar array and even more for larger installations, the Arizona Republic reported. What’s more, the tax would apply to both new and existing customers.

“This is an odd way to try to win over a conservative state — imposing higher or more taxes,” Susan Glick, senior manager for public policy at Sunrun, told ThinkProgress. “Across the country there’s overwhelming support for rooftop solar and notable conservative support for rooftop solar,” she said, and Arizona is no exception.

Major rooftop solar companies like Sunrun and SolarCity are staunchly opposed to the prospect of a property tax, particularly considering “more than nine out of every ten of our systems are leased,” said Will Craven, senior public affairs manager for SolarCity.

This is an odd way to try to win over a conservative state — imposing higher or more taxes.

Previously, both owned and leased solar arrays were exempt from state property taxes but an Arizona Department of Revenue review last year changed that by determining “leased panels are more like merchant power plants and should pay property taxes like them,” according to the Republic.

So, who would support the effort to charge solar customers more money? Solar advocates in Arizona point to the state’s largest utility, Arizona Public Service Company (APS).

Leasing solar panels is often the only option for middle class customers who want to go solar but can’t afford the cost of purchasing the array. And as rooftop solar in particular booms across the U.S., it’s middle class families that are leading the way — posing a real threat to utilities like APS. In fact, “solar technology is being overwhelmingly adopted in middle-class neighborhoods in the U.S., as more than 60 percent of solar installations are occurring in zip codes with median incomes ranging from $40,000 to $90,000,” according to a recent analysis by Mari Hernandez of the Center for American Progress. This trend has utility companies “worried that rooftop solar may undermine their business models as more of their customers go solar and buy less power from them,” Hernandez explained.

If the Arizona Department of Revenue’s interpretation stands and solar customers are faced with an additional charge, “it would help the utilities like APS to meet their longstanding goal of severely injuring the solar industry,” Craven said.

APS was recently embroiled in another heated solar battle and allied itself with groups that are working to fight clean energy in states across the country, several of which are funded by petrochemical billionaires Charles and David Koch. Last fall, Arizona’s energy regulator took up the issue of net metering — a policy that enables solar customers to be compensated for the excess energy they send back to the grid. In the end, the Arizona Corporation Commission (ACC), which has its own ties to the Koch brothers, added what amounts to a $5 per month surcharge for solar customers. The decision was widely viewed as a compromise, particularly considering the amount of money spent by APS and its allies.

According to the company’s earnings report, “as of September 30, Arizona Public Service’s parent organization had spent $9 million — more than every 2010 gubernatorial campaign combined — in the fight over Arizona’s solar incentives and deregulation of the utility market,” the Arizona Capital Times reported.

APS came under fire after admitting that it had been secretly contributing to outside nonprofits running negative ads against solar power during the net metering fight, namely the Koch-backed group “60 Plus.” In addition, the utility quietly rejoined the shadowy, anti-clean energy group the American Legislative Exchange Council (ALEC), after publicly leaving the organization in 2012. ALEC has worked to dismantle clean energy laws in multiple states and has specifically identified net metering as a policy it intends to target this year, referring to homeowners with their own solar panels as “freeriders on the system.”

APS has denied taking a stance on the property tax issue or actively lobbying for a change in Arizona taxation law that would impose a property tax only on customers who lease solar panels. However, “Barbara Lockwood, general manager of regulatory policy for the utility, wrote a letter last week to utility regulators indicating APS favors the tax,” the Republic reported. Lockwood said APS would lobby for the tax, adding, “We will ensure that Arizona legislators are aware of these facts.” APS did not respond to ThinkProgress’ request for comment.

“It’s convenient that once [APS] lost that battle last fall, that they started lobbying for a bill that would codify this interpretation into law,” said Craven. While that bill did not make it through the state legislature, the Department of Revenue’s interpretation remains on the books until the governor intervenes.

Brewer’s office needs to consider how best to represent the people of Arizona…

“APS has successfully scared people,” said Dillon Holmes, president of Cambio Energy, an Arizona solar company. “I’ve seen its effect on my business and the phone rings a whole lot less.” While Holmes’ company deals only with customers purchasing solar systems, he believes a property tax on leased panels “would have a huge effect.”

APS already requires customers to sign a waiver before going solar, acknowledging that their rates aren’t set in stone and could increase at any time. So even if the customer isn’t scared away by the additional $5 net metering fee, the uncertain future of being a solar customer could do the trick, said Holmes. “It comes back to a customer getting involved in a 20 year lease that could go south in a few years and they can’t get out of it,” he explained.

Opposing solar energy in Arizona is a risky tactic. A poll commissioned by the conservative group Tell Utilities Solar won’t be Killed (TUSK) during the recent net metering fight found that 77 percent of Arizonans surveyed would be less likely to vote for a candidate if they proposed ending support for solar. But the concerted attacks on solar energy and the additional monthly fee on APS solar customers are taking a toll. “Based on numbers from APS, solar panel applications are down 40 percent in the first quarter of 2014 as compared to the same time last year. SRP, the Valley’s other major utility company reports no change in applications this year,” KJZZ reported.

A decline like that shouldn’t be happening in a state with such tremendous solar potential and public support. “We should be the solar capital,” said Holmes.

Moving forward, solar supporters are clear that the responsibility lies with Gov. Jan Brewer (R) to rectify her agency’s reinterpretation of the property tax law. While Brewer’s office has “been surprisingly quiet” on the issue, SolarCity’s Craven points out that the governor has been a strong supporter of solar energy over the years. “Brewer’s office needs to consider how best to represent the people of Arizona and by imposing a new tax on solar customers, the only party she’ll really be serving is the government regulated monopoly, which is an odd thing for a Republican,” he said.